You are currently browsing the category archive for the 'Financing' category.
Guest Author:
Bob Chiodo
Equity Home Mortgage, LLC
* Rates
- 30 year conforming 6.125
- 30 year jumbo 6.625
- 7 yr ARM jumbo 5.75
- OR VA 5.375
I apologize for another late Oregon Financing Update, but I just returned from a two-week vacation in Italy with my son. A high school graduation and college send off gift for him (and me). Time sure flies by. Wasn’t it just yesterday when he entered school? I’ll talk a little more about the trip in future updates, but we had a great time.
I am almost caught up on my emails and all of the analyst reports that I receive. Looks like over the last two weeks the market’s volatility remained intact. Interest rates benefited from the drop in stock prices. The analysts call these “safe haven” moves. When stock prices are dropping, traders sell stocks and buy bonds with the proceeds thus helping to drop the rates. One report suggested that if the stock market recovers, interest rates would jump by a 1/4 of a percent. Personally, I don’t think another 1/4 or even 1/2 of a percent increase in rates will hurt our market. From a historical perspective, rates would still be quite low. There are signs that the housing market is strengthening and that the bottom might have passed. There are some very good buys in real estate today and we are starting to see some savvy buyers and investors enter the market. We still have a ways to go though to work through the inventory levels and foreclosures.
The Fed met last week and didn’t change the rates - that’s what the market anticipated. All are curious as to when they will start increasing the rates. There’s a lot of opinion as to whether they should increase rates or not. Increasing rates will help strengthen the dollar and help to ease the price pressure on oil and commodities, yet it could hurt employment and our business, in particular. This topic can be a very confusing and complex issue. Since I don’t have any input with Mr. Bernanke, we’ll just wait to see what he and the Fed does.
I hope everyone has a great and safe 4th of July. I’ll tell you this, you can a great appreciation for our country (especially the Pacific Northwest) when you spend some time outside of it.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed for current interest rates. Quotes are usually shown for a 30-day lock period and a 1% origination or discount fee.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
GUEST AUTHOR: Bob Chiodo
Equity Home Mortgage, LLC
Many counties offer the American Dream Downpayment Initiative (ADDI). This is a program that will “give” the buyer money that can be used for down payment and costs. These amounts vary by county and come with the typical income restrictions and education requirements. The “gift” is usually in the form of a second mortgage that doesn’t require any payments. You pay the loan off when the property is sold - without any interest charges. Sometimes, the loan will be completely cancelled under the right conditions. These types of programs are great but do require that the potential home buyer takes the time to research them and make sure the requirements are fulfilled.
To wrap up the decision on first-time programs, we should cover a little about normal conventional loans. These are called conforming, convention, Fannie Mae and/or Freddie Mac. These are your typical standard mortgage products. Althought these require some form of mortgage insurance and have been greatly restricted due to the market changes, they are definitely viable products to assist first timers. To be competitive, these products will require good credit scores and 3% down. Like the FHA loans described above, the down payment can be in the form of a gift. You might be surprised that - with good credit and a decent financial profile - these programs can be aggressive in the debt-to-income requirements.
So, now what do you do? Obviously there are a lot of good financial products out there to assist buyers in today’s market. And, yes, the information can be overwhelming. The best place to start is to sit down with an experienced mortgage professional - someone who will take the time to educate you on the loan process and the various loan programs. Being educated on the other basic financial aspects on buying a home is also important.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
Guest Author: Bob Chiodo
Equity Home Mortgage, LLC
*Rates:
-
30 yr conforming: 6.25%
-
30 yr jumbo: 6.625% (to $600k)
-
7/1 jumbo: 5.875%
-
OR Vet: 5.50%
-
State Bond FHA: 5.75%
This installment of comparing Good Faith Estimates strays from its main theme but covers a topic that all borrowers need to understand. Look at the below loan quotes and decide which is better (let’s assume that the garbage fees are similar).
6.00 with 1 point; 6.125 with 0.50 points; 6.25 with 0.00 points.
As you will recall from my first installment in this series, since .125% in rate equals .50% in points, all three of these quotes are pretty much the same. So which one is best?
The answer isn’t a simple one because it depends on a number of factors. You can over-analyze this too and, believe me, I have done that. Let’s first look at a what I call a cash-on-cash comparison. Assume the loan amount is $200000. The first option has a payment (fully amortized) of $1199.10 with a point cost of $2000 (1%). The 2nd option is $1215.22 w/cost of $1000, the 3rd is $1231.43 with zero points. The difference between each option is $16 per month for every $1000. Take that $1000 divided by $16 and it takes 62 months to break even. That’s a little over five years. This is a very simple analysis. So I always ask client what would you rather have - a payment of $32 more per and $2000 in the bank or vice versa. The problems with this analysis: the lower the rate the more that goes to principle at the beginning of the loan. The first option has about $199 going to principle, the 3rd option has $189. That can impact the breakeven point.
Tax deductions play another role. The first year deduction will be much better with the first option on purchase loans (assuming you deduct all of the points up front - on refi’s you usually amortize the points) but in subsequent years the deduction will be lower (since the rate is lower). Opportunity cost of the money paid up front can come into play. If you spend the $2000 on the points, it’s gone. If you kept it you can earn some interest on it. More importantly, if you kept it and needed it later to spend and didn’t have other funds you might need to resort to using a credit card - which obviously has a much higher rate. That is one main reason why we tell our clients that we want to see them keep money in reserves after buying a home. I’d rather see a client take the higher rate and payment and keep the $2000 in the bank if that was all they had.
On a purchase loan, having the seller pay costs can impact this decision. It might make sense to use the seller’s money to buy the lower rate. Obviously, the borrower’s monthly budget needs to be taken into consideration. Can they handle the higher payment. Normally it’s not that big of an issue but what if the buyer is buying at the very top of his or her limit?
As I said before, you can over analyze this - and I pretty much did with all of the info above. I tell clients if they get confused then take the middle ground - the .50% point option. That’s easy. But, if they are only going to keep the loan for a short time period (less than a couple of years) then the zero option is always best. As always, send me a note if you have any questions.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
The other day I was in line at the grocery store and the lady in front of me was getting ready to pay. The cashier asked her what form of payment she would be using and the customer said check. The cashier said it’s almost unheard of as everyone was using their debit or credit cards for groceries. When it was my turn, I indicated I would be paying by cash and the cashier, again surprised, stated no one was paying cash any more.
My first part-time job in high school was in the credit department of Lerner Shops. I would approve or disapprove customers’ purchases on “layaway” based on their previous layaway payment records. What a novel idea that was, you actually had to pay for the item before you got to take it home! Of course, nowadays with credit cards, we get to take the item home before we ever even pay for it.
Recently a friend of mine went on a trip and left all her credit cards at home. She had saved up cash and had just paid off her credit cards and didn’t want to incur any debt. You probably know the outcome of this story: she had a rental car waiting, had the cash to pay for the entire bill and the rental agency wouldn’t take her cash. She then wanted to pay by check and they wouldn’t take that either. She ultimately called the credit card company to get approval; otherwise, she would have been stranded.
Did you know there is $957 billion owing in credit card debt? That’s “billions”! The average person carries $8,000 in credit card debt, $7 Billion owed are penalty fees, only 1/3 pay off their balances monthly, and 70% of all Americans have at least one credit card.
When my parents bought their first home, and subsequent homes, they always paid cash. Granted those prices were considerably lower in those days but it was still a lot of money even then. However, I still have people pay “cash” for houses. When they do, we Realtors® have to question the cash (is it on deposit, we need written proof of funds, where did the cash come from?, etc.)
If “Cash is King” why then can’t we use it and why are we being forced into using credit cards all the time? You can’t order anything on line without a credit card and it’s nearly impossible to function in this world without credit. Wouldn’t it be a far better idea if we all paid by cash and limited ourselves to only buying what we could afford?
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
Guest Author: Bob Chiodo
Equity Home Mortgage, LLC
*Rates:
30 yr conforming 6.25%
30 yr jumbo 6.625% (to $600k)
7/1 jumbo 5.75%
OR Vet 5.5%
OR Bond FHA 5.75%
There is still a lot of volatility in the market place. The rates down a little off of this week’s high. We are still expecting the Fed and ECB will lead the way to higher rates in the future, we don’t look for any central bank to begin tightening until later this year. The action in the bond market on Tuesday and Wednesday, is taking back a lot of the selling that was instigated by the view last week the Fed was about to move.
In this week’s installment on Good Faith Estimates (GFE) I am going to discuss my take - and that’s my take only - on Annual Percentage Rate or APR. First of all, I think that the APR, even though it’s a regulatory requirement, is a terrible way to compare loan programs. APR’s are very difficult, if not impossible, to calculate without a computer. In fact, I don’t know anyone in our business who can calculate an APR by using only a calculator. I have been in this business for almost 30 years and, although I learned how to a long time ago, I can’t calculate one without my processing software program. I would say that most in our business don’t truly understand what goes into the calculation and how it relates to the Truth-In-Lending form. To me, though, it doesn’t matter. I think that most in our industry understand that the APR disclosure needs to change but getting a consensus on how it should change has been very difficult to accomplish.
A couple of problems with the APR is most don’t understand how APR is calculated, then how can they tell if it is accurate and what changes it? The APR takes certain costs and fees charged on a loan (Prepaid Finance Charges) and includes these certain charges into an amount called Finance Charges (which also includes the interest paid on the loan over it’s term). These Prepaid Finance Charges are removed from the loan amount with the remainder being labeled the Amount Financed. Then the Finance Charges are calculated back into the Amount Financed and you get your APR. Sound confusing? You betcha! There are things that will change the APR. Prepaid interest can change the APR - which means that the date the transaction closes will change it. What we estimate for some third party fees (escrow charges) will change it. I do primarily purchase transactions. If the seller contributes money to the buyer’s closing costs, this will change the APR. I just ran one scenario where the seller paid most of the buyer’s closing costs (this happens frequently) and the APR came back lower than the actual interest rate. That’s because the seller paid an amount in excess of the prepaid finance charges - part of the closing costs aren’t considered Prepaid Finance Charges.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
GUEST AUTHOR: Bob Chiodo
Equity Home Mortgage, LLC
Another excellent program that works for first time - and subsequent - buyers is the Federal VA loan. Obviously, you have to be a veteran, but the VA loans allow for nothing down and have flexible guidelines. Late last year, VA expanded their programs to include jumbo loans (over $417,000). The jumbo loans do require a down payment but, overall, it makes for a very aggressive product.
Many states and local governments also have first-time home buyer loans available. The Oregon State Bond loan is one such product. At the time of this writing their very popular Cash Advantage Program has been temporarily suspended. The Cash Advantage was great because the State would include a 3% gift as part of the loan. This gift could be used towards the down payment or closing costs. They still have their Rate Advantage Program that has a below market interest rate. Household income limitations are in effect, however.
Another great program - only for areas considered rural - is the USDA Program. This program is also not just for “first timers” but it does allow for full 100% financing. It has a very competitive rate with no monthly payments for mortgage insurance. There is a one-time insurance/guarantee fee of 2% but that can be financed in the loan. Income limitations do apply and they are a little tougher on income qualifying. And, although it’s a rural program, you might be surprised that Sherwood, Canby and other areas qualify.
There are many other products offered through local governemnts that will help 1st timers get into their home. Many of these products will help the buyers with second mortagages that can be used in conjunction with a regular conventional loan. Most, if not all of these programs, have income limitations. Many also have other restrictions….neighborhood specific, education requirements, etc. These programs aren’t for everybody but definitely fill a need in their communities.
Stay tuned for Part 3……
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
GUEST AUTHOR: Bob Chiodo
Equity Home Mortgage, LLC
By now, everyone has heard that getting a mortgage has become a lot more difficult. The press and many analysts have reported the collapse of the capital markets and the tightening of underwriting guidelines. While most of that is true, the news isn’t as bad as it seems. Real estate values have become very reasonable and there is a good amount of inventory to choose from. On the financing side, there are a number of affordable programs available, particularly, for first-time home buyers.
The first of these programs that should top all lists is the Federal Housing Administration (FHA) loan program. The FHA loan is not for just first time homebuyers however. One thing to note about the FHA loan is that FHA (administered by HUD) doesn’t actually get involved in the loan process. The loans are handled by banks, brokers and the normal loan channels. FHA sets up guidelines that we all have to follow and they insure the loan. This insurance, better known as mortgage insurance, is the key that makes the FHA loans so viable.
Currently, many mortgage insurance companies are making it difficult to finance properties for those with lower credit scores. Not so for FHA loans. If the FHA loan is approved, the mortgage insurance is a given. While conventional loans start assessing higher rates with credit scores below 720, FHA loans don’t have such charges (many lenders are assessing charges with scores below 620 though). There is a lot more leniency for credit - late payments and collections aren’t necessarily the “kiss of death”. The debt-to-income ratios, while not as aggressive as the old programs - are still very reasonable. FHA does require a down payment of 3% of the sales price. Now this might stop a lot of potential home buyers in their tracks, but FHA does allow the down payment to come from a gift. The gift can be from parents, other relatives and even charities. There are a number of charities who focus on giving the money to buyers for the down payment. These firms, known as down payment assistance programs (DPA’s) specialize in helping buyers get into a house with little to no money out of pocket. The programs take a bit of explaining, but they are well worth understanding.
Check back for future posts - Parts 2 and 3 - on financing options for first-time homebuyers.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
Equity Home Mortgage, LLC
Weekly Mortgage Update
RATES
-
30 yr conforming=5.875
-
30 yr jumbo=6.125
-
7/1=5.50
-
OR VA=5.250
Rates ended up a little last week. However, interest rates still remain range bound. We have seen 5.50% to 6.00% for well over two months now. Over the long term, most economists predict increasing interest rates as the world adjusts to the increased energy and food costs. As you can see, the Oregon Dept. of VA has the best rate out there. Only 5.25% for a 30 yr fixed. Did you know that you can refinance a mortgage using the OR VA as long as the home was purchased in the last 18 months? It’s a nice option for veterans.
Here are a couple of noteworthy items: 1) By now everyone knows that Fannie and Freddie have increased their rates for those with scores lower than 720. It costs an additional .125% to rate between 680 to 719. A lot higher if you are lower than that. That said, these increases are only for terms greater than 15 years. So, a 15 year mortgage term isn’t subject to the rate increases. This might be a good option for a few buyers out there. 2) ARM’s are back. As the yield curve returns to “normal” (where shorter terms have lower rates and longer terms have higher rates) we are seeing 5/1 ARMs being priced much more aggressively. You can get a 5/1 or 7/1 in the low to mid five’s now. It’s a good option for those who won’t be holding on to their home for a long time. FHA also has a very reasonable 5/1 today.
Speaking of FHA…..make sure you are aware of their anti-flipping rule. This comes up on homes that have changed hands within 90 days of a new sales agreement. For example, if I bought a foreclosure last month and wanted to sell it this month, my buyer couldn’t obtain FHA financing. FHA requires a 90 period between sales. Please pay particular attention to the issue with contract dates. This 90 day period has to elapse before an offer can be signed/dated. Also, no work on the file can be performed prior to the expiration of the 90 day period - no appraisal, prelim, etc. We recently closed one where this occurred. The buyer and seller couldn’t execute the sales contract until the 90 day period elapsed. Let’s just say this caused some angst between all parties - it did close though. Special rules do apply if the previous owner acquired title through foreclosure proceedings (i.e., bank owned).
Remember, Fannie’s updated DU system becomes effective this weekend. It’ll be interesting to see how conservative the changes will be. If you can, get pre-qualified before then.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
Last evening I heard that Fannie Mae is about to introduce a program to refinance mortgages for people who owe more than the current value of their homes, a situation known as being “underwater”. It was also reported in the Wall Street Journal. Click here to see the article and more particulars of this upcoming assistance.
This is the first time I’d ever heard that word before but think it is a great idea. However, what bothers me is that it seems to take forever to get things in place. I’m sure those homeowners who will qualify for this are probably thinking the same thing and that “sooner” would be better rather than “later”.
This program is going to be available to those people who are current on their mortgages and whose loans are owned or guaranteed by Fannie Mae. To me that’s important. If you read my blog on “Buyers Walking Away from Their Homes and Mortgages”, I don’t believe in rewarding or helping people who ignore their obligations. Helping people who are struggling or are financially straped or who are trying to make a go of it but for reasons just can’t, I personally feel is a better way to help in the long run. If you constantly help those who “walk away”, they will continue to do just that.
(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).
Betty Jung
Comments about Betty's Blog